Despite two years of corrosive austerity measures since it needed an international financial rescue, Portugal’s prime minister told his country Sunday to brace for even harder times after a court ruling forced his government to find more savings through steep spending cuts.
Pedro Passos Coelho said in a somber televised address to the nation that his center-right government must slash public services because of a Constitutional Court decision to disallow some of its latest tax hikes.
A new crackdown on public spending will focus on social security, education, health services and state-run companies, he said. That is likely to bring more layoffs as Portugal scrambles to restore its financial health after it needed a 78 billion euro ($101 billion) bailout in 2011.
“Today, we are still not out of the financial emergency which placed us in this painful crisis,” Passos Coelho said.
Portugal’s worsening problems threaten to reignite the eurozone’s financial crisis not long after Cyprus became the fifth member of the 17-nation bloc to require rescue.
The Portuguese economy contracted 3.2 percent last year and is forecast to shrink 2.3 percent in 2013 for a third straight year of recession. The unemployment rate, currently at a record 17.5 percent, is forecast to climb to 18.5 percent in 2014.
It is a crisis looming on the horizon. Indeed, the possibility of massive defaults of student loans may be this decade’s financial crisis. Some say it would rival the housing bubble and the dot.com bubble in terms of its effect on the national economy.
That’s a major fear for Lindsey Burke, the Will Skillman Fellow in Education Policy at the Heritage Foundation in Washington, D.C. Student loan debt now exceeds credit card debt, and too often, students are financing degrees that don’t pay off in the long run.
Burke also noted that online courses are putting tremendous pressure on the traditional university system. Access to information is becoming radically cheaper, while the cost of college continues to increase at unsustainable rates. She said this will cause the bubble to burst.
But not everyone is ready to sound the alarm. Neal P. McCluskey, the Associate Director, Center for Educational Freedom at the Cato Institute, Washington D.C. feels there’s much ado about nothing and minimized the danger of the potential economic drain.
“I’m not sure that there is good evidence that this decade’s financial crisis will be huge defaults on college loans,” McCluskey said.
McCluskey believes that it costs far too much to attend college. He attributes this, in large part, to the federal student aid that enables colleges to increase their tuition rates in excess of the inflation rate.
“But average debt for graduates with debt is around $27,000, which is small compared to mortgage debt,” McCluskey said. “For students going to good schools and pursuing in-demand degrees, it should not be hard to pay off.”
If you want to know how much worse our economic recovery could be, check out Scott Walker’s austerity-rocked Wisconsin — which has gone from 11th in job creation to 44th in just two years.
Walker stormed into office in 2011 on the crest of a Tea Party wave and immediately added $117.2 million to the budget deficit with a series of tax cuts that did nothing to spur job creation. He “paid” for these cuts in part with an attack on public workers that he failed to mention in his campaign that he was going to pursue.
The governor and his Republican majorities cut workers’ salaries by about eight percent across the board, eliminated collective-bargaining rights and essentially tied any future wage increases to the rate of inflation.
The growing budget deficit Walker inherited was mostly the result of the financial crisis. Investors enabled by conservative politicians had collaborated to create the worst economic crash since the last time investors and conservative politicians had crashed the economy.
Hans-Olaf Henkel is Professor of Business Economics at the University of Mannheim. Previously he was chairman of IBM Europe, Middle East and Africa and President of the Association of German Industries (1995-2000). He is a leading advocate of a split of the eurozone.
Henkel is also a leading figure in a new political group, “Alternative for Germany”, which is expected to be an official party in time to contest the September general election. Its main plank is the abolishment of the euro. (See here.) On March 4, Deutsche Bank Research published an analysis concerning its prospects. (See here.)
In the following article, Lars Schall revisits a debate over comments Henkel made in 2009 in which he attributed the cause of the sub-prime crisis and subsequent global financial crisis to political “do-gooders” ending the practice of banks in the US “redlining” specific areas, such as slums, often with a specific ethnic population, as no-go zone for home-loans.
You have heard the widespread thesis that no one saw the current financial crisis coming. That thesis is simply wrong. However, it makes sure that those are not seen and heard, who a) did see it coming, who b) could have prevented it, and who c) have the knowledge of how we can get out of the schemozzle we’re in.
A prime example for those contemporaries who say that no one saw the crisis coming is Hans-Olaf Henkel, the former head of the Federation of German Industries. Currently, he is, among other things, Bank of America’s senior advisor in Germany and a regular columnist for Das Handelsblatt, Germany’s most respected financial newspaper. Mr Henkel is in Germany a household name among people who follow economics and politics.
Thus, what Henkel says has some impact on the perception and thinking of the general public in Germany. Or, as he himself explained quite well during a 2009 interview with the German stock market commentator Michael Mross: ”If you don’t know the reason for the crisis, you automatically don’t know the right means to prevent the next one.”
But after the crisis, as the Obama presidency dawned, conservatives decided it had all been the government’s fault. Conservatism has never failed, it has only been failed:
The financial crisis of 2008 and its painful aftermath, which we’re still dealing with, were a huge slap in the face for free-market fundamentalists. Circa 2005, the usual suspects — conservative publications, analysts at right-wing think tanks like the American Enterprise Institute and the Cato Institute, and so on — insisted that deregulated financial markets were doing just fine, and dismissed warnings about a housing bubble as liberal whining. Then the nonexistent bubble burst, and the financial system proved dangerously fragile; only huge government bailouts prevented a total collapse.
Instead of learning from this experience, however, many on the right have chosen to rewrite history. Back then, they thought things were great, and their only complaint was that the government was getting in the way of even more mortgage lending; now they claim that government policies, somehow dictated by liberals even though the G.O.P. controlled both Congress and the White House, were promoting excessive borrowing and causing all the problems. Every piece of this revisionist history has been refuted in detail. No, the government didn’t force banks to lend to Those People; no, Fannie Mae and Freddie Mac didn’t cause the housing bubble (they were doing relatively little lending during the peak bubble years); no, government-sponsored lenders weren’t responsible for the surge in risky mortgages (private mortgage issuers accounted for the vast majority of the riskiest loans).
But the zombie keeps shambling on — and here’s Mr. Rubio Tuesday night: “This idea — that our problems were caused by a government that was too small — it’s just not true. In fact, a major cause of our recent downturn was a housing crisis created by reckless government policies.” Yep, it’s the full zombie.
h/t Ed Kilgore, Washington Monthly
When the Dodd-Frank financial reform law first passed, Senate Republicans refused to confirm a director for the newly-created Consumer Financial Protection Bureau. They promised to block any nominee — regardless of that nominee’s qualifications for the job — unless the Bureau was weakened and made subservient to the same bank regulators who failed to prevent the 2008 financial crisis.
President Obama was thus forced to recess appoint Ohio Attorney General Richard Cordray to be the Bureau’s first director. Now that Obama has renewed Cordray’s nomination, the Senate GOP is again promising to block any nominee unless the Bureau is watered down:
In a letter sent to President Obama on Friday, 43 Republican senators committed to refusing approval of any nominee to head the consumer watchdog until the bureau underwent significant reform. Lawmakers signing on to the letter included Senate Minority Leader Mitch McConnell (R-Ky.) and Sen. Mike Crapo (R-Idaho), the ranking member of the Senate Banking Committee.
Back in the mid-2000s, the U.S. consumer economy was undergoing a serious change. After decades of favoring low prices (even when they promised low quality), consumers began paying more for all sorts of premium features like single-serve packaging and pretty much anything “green” or “organic.” Then came the financial crisis and the drop in consumer demand.
Despite a worse-than-expected holiday season, the Federal Reserve forecast that G.D.P. growth would approach the historic average of about 3 percent in 2013. The economy may be coming back, but the question for many businesses is what the new “normal” looks like. Will shoppers spend as they did in the credit-bubble years? Or has the Great Recession scared them into prolonged stinginess? Early evidence suggests a mix. What is clear is that the big changes are just beginning.
Waste More, Want More
From the 1970s through the 1990s, the dominant retail trend was toward cheap and big: shoppers drove long distances to buy large boxes of everything they needed in bulk. Starting in the last decade, though, this began to change. And the success of products like Tide Pods (premeasured balls of detergent that made Procter & Gamble an estimated $500 million last year) suggest that the era of premium conveniences isn’t going anywhere.
Somewhat counterintuitively, this trend is directly related to the downturn, says John N. Frank, an analyst at Mintel, a market-research firm. Fearful of losing their jobs, millions of workers coped with the crisis by putting in more time at the office — ‘doing at least two people’s jobs,’ Frank says — even if it meant less time to shop for deals. Dollar General saw tremendous growth as a more convenient alternative to Sam’s Club. Duane Reade, now owned by Walgreen, is proving that no block in Manhattan should be without a drugstore that also carries basic grocery items at an upcharge. Frank says he expects that anxious, overtired workers will drive this trend well into this decade, too.
A few months ago, an alternative currency was introduced in the Greek port city of Volos. It was a grass-roots initiative that has since grown into a network of more than 800 members, in a community struggling to afford items in euros during a deepening financial crisis.
The handicrafts stall at Volos central market lies at the end, just past the homemade jams. After perusing what there is on offer, Hara Soldatou picks out a set of decorated candles, delighted with her purchase. “They cost me 24 TEM, which I built up by offering yoga classes,” she says.
Wherever you wander through the market area, one thing you won’t need in your pocket is money.
From jewellery to food, electrical parts to clothes, everything here is on sale through a local alternative currency called TEM.
It works as an exchange system. If you have goods or services to offer, you gain credit, with one euro equivalent to one TEM.
You can then use your “savings” to buy whatever else is being offered through the network, leading to some rather original exchanges of goods.
It’s all reminiscent of an ancient bartering system returning to today’s Greece.
“I can get language classes or computer lessons in return”, says Stavros Ntentos from his stall where he sells children’s underwear.
“It’s a very good idea because we need to make people realise we can all buy and sell something; we don’t only need euros.”
“We have reached the bottom of our lives and we now have to think in a different way,” says Tasos, a vegetable-seller.
After a record number in 2012, forced evictions in Spain have become the symbol of a crisis that shows no signs of improving. Next year isn’t likely to be any better, but with more attention now being paid to those losing their homes, relief in the form of legal reform may soon be on the way.
Joan Peinado Garrido, 59, can’t sleep at night and he’s lost his appetite. He takes various medications and, has resumed stuttering when he’s upset. The frail man gently guides his 86-year-old mother, María José, from the tiled kitchen to the living room.
The old woman uses a cane and is dependent on her son’s help for more than just walking. For half a century, the family has been living in the white corner house at 52 Avenida Mediterránea in the town of Vidreres, near the provincial capital of Girona northeast of Barcelona. Now, Peinado has to vacate his home — and he has no idea where he, his unemployed daughter Mireilla, 28, his seven-year-old grandson and his mother will find lodging.
It smells like cleanser in the house. The floors of the kitchen and bathroom are sparkling clean, and the wineglasses are arranged in neat rows in the living room glass cabinet. Grandson Marc has created a nearly perfect circle with his toy cars in front of his bed. His grandfather sleeps on a nearby cot. There are no boxes or other indications that the family is about to move.
Some 400,000 eviction proceedings have been opened in Spain since 2007, with roughly half of the families involved having already lost residential properties due to foreclosures. For most of them, these were their homes. Now, in the fifth year of the financial crisis, the evictions have become an iconic image of the country’s economic plight. During the first six months of this year alone, the Consejo De Poder Jucicial, a professional association of judges, registered 94,502 repossessions — and the evictions reached a record 532 a day during the first half of 2012.
This is a masterful artifice by Boehner - by setting the tax ceiling so high and proposing little else to reduce the deficit he can make it look like he’s acceding to the the President’s plan when he’s not. Any cap above 250k offers too little revenue and Boehner knows it. This is especially true when that’s offered up with zero cuts. This is a game where the GOP won’t do anything that doesn’t cut medicare and social security, but they want it to look like it’s the president’s idea.
It’s really a gross dereliction of duties, since it is specifically the House of Representative’s duty to create and pass the budgets year to year.
‘There’s been a lot of posturing up on Capitol Hill instead of going ahead and getting stuff done, and we’ve been wasting a lot of time,” Obama said. “If you just pull back from the immediate political battles, if you kind of peel off the partisan war paint, then we should be able to get something done.”
But it was beginning to look a lot like postponement for Obama’s annual Christmas break in Hawaii, so he could continue working to prevent a looming political and financial crisis.
The House was poised to vote today on a measure that Boehner devised on his own — what the speaker is calling “Plan B” — to give tax breaks to everyone except millionaires. Obama Wednesday threatened to veto the bill and Democrats have dismissed that plan as a “political ploy” intended to give Boehner and Republicans political cover if the fiscal cliff talks end in failure.
Boehner showed no signs of backing down and appeared determined to maximize political leverage and use the measure to strengthen his hand in negotiations. In a very brief appearance at the Capitol, Boehner said that the House would take up his bill on Thursday. He declared that his “Plan B” measure will give Obama two options: `He can call on Senate Democrats to pass that bill, or he can be responsible for the largest tax increase in American history.”
Polls show that most Americans would blame Republicans if the fiscal-cliff is reached without a solution, a situation that would risk a recession with $500 in combined tax hikes and government spending reductions. How much Boehner’s “Plan B” bill with its $1 million threshold for tax increases would mitigate fallout for the GOP is difficult to predict.
Democrats attempted to paint it as an inadequate solution to the problems at hand, in terms of increasing revenues and reducing spending. The White House said Boehner’s Plan B would only cut $300 billion from the deficit, through increased revenues from millionaires.
“The deficit reduction is minimal, and perversely, given its authors, solely through tax increases with no spending cuts,” White House communications director Dan Pfeiffer said in a written statement. “This approach does not meet the test of balance, and the President would veto the legislation in the unlikely event of its passage.”